Lisa Hart Shepherd of Acritas considers the potential for growth that is offered to law firms by the growing business trend of internationalisation.
Strong leaders have long been aware that, as Napoleon once said, "ability is nothing without opportunity". For law firm leaders, it is becoming increasingly clear that opportunity lies firmly in international markets.
Although internationalisation presents law firms with great potential for growth and profitability, there are many routes to achieving global expansion and many potential outcomes. Choosing the right path can be difficult.
In order to reduce significantly the risk of making the wrong choice, it is important to ensure that your firm has accurate, reliable data as the foundation for its internationalisation strategy. This can mean the difference between success and costly failure.
Sharplegal research is a comprehensive annual study of the global legal market conducted by Acritas. The most recent survey shows a marked increase in international opportunities for law firms.
Sharp rise in demand. According to Sharplegal research, among the companies surveyed there has been a 50% increase in international legal spend over the last two years, while overall legal spend has remained largely static (see box "Expected increase in spend"). The survey reveals that the average legal department's (that is, a legal department with legal needs in more than one country) spend on legal advice outside the home country has grown from 21% of the overall budget in 2009, to a substantial 31% in 2011.
Furthermore, it is not only the average percentage of budget assigned to overseas advice that is rising: the number of organisations with international needs is on the increase too.
This is particularly evident in the US and Asia, as they follow in the footsteps of their European counterparts who were forced to "go global" at an early stage in order to avoid the constraints of smaller markets. Until now, the majority of US and Asian firms were able to base their growth strategies on the massive opportunities presented by their extensive home markets. However, internationalisation is now proving to be an irresistible force in the US and Asia too.
What is driving the demand? Fuelling the increase in the average value of international spend is the fact that, as new markets open up and demand for products and services widens, organisations are seeking advice in an increasing number of countries to meet these emerging needs.
Markets such as Mexico, Vietnam, Indonesia and South Africa are becoming key focus markets for many multinational companies. However, this expansion brings with it the substantial challenges involved in needing to consider the different legislation that applies in each market. Highly regulated industries, such as financial institutions and pharmaceuticals, have an even tougher time as regulations vary around the world in terms of volume, complexity and clarity.
It is clear that the opportunities on the international stage are plentiful. However, developing those opportunities successfully is where ability becomes critical.
On the whole, when in-house departments need assistance to ensure that their business operations are conducted in a "legally safe" manner, they still turn to law firms as their primary partners. However, there are many issues for an in-house legal team to consider when seeking a firm to meet their international legal needs. Equally, a law firm has much to think about if they are going to offer themselves as a firm that can deal with international issues.
The in-house perspective. The challenge for in-house legal teams seeking law firms to service their needs in new territories lies in:
Finding the right quality of lawyers.
Ensuring that they provide an equivalent level of service to the standard received in the home market.
Breaking through language and cultural barriers.
The primary sources of information are referrals and legal directories such as PLC's Which Lawyer, which are useful for compiling an initial list of possible candidates.
Personal recommendations are invaluable, enabling in-house lawyers to reach a decision with the confidence that they are basing their choice on the experience of a trusted source. Law firm associations can also provide useful guidance.
The Sharplegal research shows that international firms are usually preferred because their brands provide the comfort and reassurance that certain standards will be met. However, local market knowledge is critical, and international firms do not always possess lawyers with sufficient local experience.
The law firm perspective. For law firms, the challenge of meeting potential clients' international requirements presents different problems:
What are the prerequisites for entering a new market and what are the barriers to entry?
Can clients' needs be met from the firm's existing office network or is a team on the ground the only solution?
At what point is the return on investment for a team/person covered, and what are the long-term prospects of the market?
The most important factor for law firms when seeking business in new, overseas, markets is to be honest about their abilities. There is a strong temptation for firms to tell potential clients that they have capability in certain markets to stand a better chance of winning work and appearing to be truly international.
All of the Sharplegal research indicates, however, that firms will gain far greater respect from clients if they are straightforward in their approach and, instead of over-promising, make efforts to seek local partners who really do know the market in question.
For example, of increasing importance in emerging markets is the ability to meet the requirements of the UK Bribery Act 2010, especially where a law firm will need to interact with government departments on behalf of its clients. Finding lawyers that are happy to jump through the kind of due diligence and procedural hoops that the Bribery Act 2010 demands can prove problematic. Nevertheless, there are plenty of firms in emerging markets who are familiar with anti-corruption requirements (particularly those with a large US client base) with whom law firms can consider partnering.
Clearly, law firms have great scope to help in-house legal teams to break down the many barriers on the path to international business growth and success. Law firms need to become expert at demonstrating specific knowledge of clients' markets and the unique challenges that they face.
Those who are taking time to thoroughly research their clients' needs and challenges will be best placed to help them emerge from these tough market conditions in the strongest possible position for future growth.
Lisa Hart Shepherd is chief executive officer of Acritas, a leading provider of legal market research.